Miliband's challenge: can you freeze energy bills and cut carbon at the same time?

The Labour leader may need to move some of the cost of energy efficiency schemes from consumer bills to taxation.

Ed Miliband has made a seemingly impossible promise. Energy bills will be frozen while the UK invests billions to stop burning gas and coal for power. What was he thinking? Implementing his plan may be more radical than it seems.

For years the established energy mantra has been "choose your poison". Bills can go up with rising gas prices or the cost of new wind-farms, but either way, they’ll go up. As the prediction has morphed into reality politicians have tried to find a way out.

Fracking - it’s said - will flood the market with cheap gas or energy efficiency will be so effective, so quickly, that households won’t even notice the extra costs. Neither idea currently looks like it will work.In a recent submission to Parliament, Bloomberg argued UK shale gas would cost about what we currently pay - just to get it out of the ground. And if what you are trying to do is cut global carbon emissions, fracking seems an odd way to go about it given that shale gas is a fossil fuel that releases carbon pollution when burned.

Officially, at least, the government still thinks home insulation will mean bills are lower in 2020 than they are now. Yet that can only happen if households have spent to insulate their homes (or consumers have been charged through their bills to subsidise it). The Green Deal was meant to square that circle, but it is manifestly not (yet) working.

Underlying the seemingly intractable problem is a silent assumption that all the costs of energy policy should be paid for almost entirely through bills, at market rates, with the help of the big six. It’s hard to freeze bills and invest billions if you insist that every cost you impose must be passed directly on to the consumer at rates of interest higher than the average mortgage.

It’s especially difficult if you insist on putting implementation for your policies into the hands of an group of firms who have very little to gain but much to lose if things go wrong. And it’s almost impossible if consumers don’t see any way of sharing in the profits on the investments they are paying for. These assumptions have their own logic, but it isn’t about freezing bills. If Miliband wants to fulfil his promise, it’s that set of assumptions he may have to break.

Some of the costs levied on bills go straight to the Treasury. The government’s Carbon Price Floor, for example, drives up the cost of power, supposedly in a (so far unsuccessful) attempt to make coal more expensive than gas. It’s expected to raise around £2bn for the Treasury by 2017, and more after that. But, if you are committed to cutting carbon out of the energy mix, a carbon tax on power plants is hardly a long term deficit fix.

Miliband could scrap it - replacing it with regulation to phase out carbon emissions from coal plants. Or he could use the money to pay for efficiency schemes - or simply to give every household a flat rebate on their bills.

More controversial would be measures which effectively move some of the cost to taxation, rather than bills, arguably a fairer way to pay for new infrastructure since it would enable the government to protect the most vulnerable people in society such as the fuel poor. The main way to do this would be to underwrite loans at low rates of interest - something the Germans already do. Loans for the government’s Green Deal energy efficiency scheme start at around 6 or 7%.

Reducing them to something closer to inflation would cut the cost to households and reduce the need to subsidise insulation measures through bills. The same logic applies to investments in clean energy.The cost of borrowing money helps determine how much consumers pay for the power but right now it can be too high, partly because investors worry about the government changing its mind.

Instead of paying investors to make up for their uncertainty the government could take on more of the risk itself (through the Green Investment Bank, for example) reducing the cost of borrowing and encouraging stability in energy policy. And just as we currently use taxpayer money to fund roads the treasury could invest in a new north sea grid which could benefit the whole economy and lower the costs of energy.

R&D and the development of new heat and sea based technologies could also come from taxation. The investment is relatively small and doesn’t just benefit bill payers - if they work - the technologies could provide exports for the whole economy, indeed we already fund renewable heat this way.

But cutting costs can’t just be about taking risk away from the private sector, or switching the burden away from bills. It could also be about challenging the perceived monopoly of the big six utilities and institutional investors by encouraging the UK’s regions and individuals to invest in its new energy infrastructure. By comparison, in Germany most of the investment in clean energy comes from individuals and local authorities and not the transnational energy giants. This needn’t be just about village based community projects. Why shouldn’t the City of Newcastle, for example, be an investor in the wind farm which provides it with power and jobs? Some policies are there - but not the funding.

Local projects, backed by residents through crowd-sourcing schemes, cooperatives or local authorities may also face fewer delays, driving down costs. And if local authorities, communities or individuals invest in clean energy then the returns go back to those communities - opening up the potential for the money to be used to cut bills further.

New entrants may be particularly important if the existing energy retailers become reluctant investors as a result of policies to freeze bills. In the short-term, a spike in the price of gas - due to war overseas, for example - will put pressure on energy firms to push up bills.

A two year freeze may be possible - by forcing firms to buy more of their gas on long term contracts. The main risk, for companies, would be that their customers switch away - but the industry isn’t exactly known for it’s fast customer turnaround. Labour has also suggested the cap may be moved in the event of extreme events like a war.

More storage, greater European regulation of the market, and moves to split firms up so they don’t buy and sell gas from themselves may help - as would the very retro and highly unlikely notion of state support at times of price spikes. Whilst gas is a big part of our energy mix action, these measures may keep prices stable on average - but the ride will be bumpy - both up and down. Ultimately, freezing bills probably means not just changing how we fund our energy infrastructure but changing what we use to generate the power and the heat we need.

Damian Kahya is editor of Greenpeace Energydesk

Ed Miliband gives a radio interview next to a giant ice cube representing Labour's energy price freeze at the party's conference in Brighton last month. Photograph: Getty Images.

Damian Kahya is editor of Greenpeace Energydesk

Photo: Getty
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In the race to be France's next president, keep an eye on Arnaud Montebourg

Today's Morning Call. 

Good morning. As far as the Brexit talks are concerned, the least important voters are here in Britain. Whether UK plc gets a decent Brexit deal depends a lot more on who occupies the big jobs across Europe, and how stable they feel in doing so.

The far-right Freedom Party in Austria may have been repudiated at the presidential level but they still retain an interest in the legislative elections (due to be held by 2018). Both Lega Nord and Five Star in Italy will hope to emerge as the governing party at the next Italian election.

Some Conservative MPs are hoping for a clean sweep for the Eurosceptic right, the better to bring the whole EU down, while others believe that the more vulnerable the EU is, the better a deal Britain will get. The reality is that a European Union fearing it is in an advanced state of decay will be less inclined, not more, to give Britain a good deal. The stronger the EU is, the better for Brexit Britain, because the less attractive the exit door looks, the less of an incentive to make an example of the UK among the EU27.

That’s one of the many forces at work in next year’s French presidential election, which yesterday saw the entry of Manuel Valls, the French Prime Minister, into the race to be the Socialist Party’s candidate.

Though his star has fallen somewhat among the general public from the days when his opposition to halal supermarkets as mayor of Evry, and his anti-Roma statements as interior minister made him one of the most popular politicians in France, a Valls candidacy, while unlikely to translate to a finish in the top two for the Socialists could peel votes away from Marine Le Pen, potentially allowing Emanuel Macron to sneak into second place.

But it’s an open question whether he will get that far. The name to remember is Arnaud Montebourg, the former minister who quit Francois Hollande’s government over its right turn in 2014. Although as  Anne-Sylvaine Chassany reports, analysts believe the Socialist party rank-and-file has moved right since Valls finished fifth out of sixth in the last primary, Montebourg’s appeal to the party’s left flank gives him a strong chance.

Does that mean it’s time to pop the champagne on the French right? Monteburg may be able to take some votes from the leftist independent, Jean-Luc Mélenchon, and might do some indirect damage to the French Thatcherite Francois Fillon. His supporters will hope that his leftist economics will peel away supporters of Le Pen, too.

One thing is certain, however: while the chances of a final run-off between Le Pen and Fillon are still high,  Hollande’s resignation means that it is no longer certain that the centre and the left will not make it to that final round.

THE SOUND OF SILENCE

The government began its case at the Supreme Court yesterday, telling justices that the creation of the European Communities Act, which incorporates the European treaties into British law automatically, was designed not to create rights but to expedite the implementation of treaties, created through prerogative power. The government is arguing that Parliament, through silence, has accepted that all areas not defined as within its scope as prerogative powers. David Allen Green gives his verdict over at the FT.

MO’MENTUM, MO’PROBLEMS

The continuing acrimony in Momentum has once again burst out into the open after a fractious meeting to set the organisation’s rules and procedures, Jim Waterson reports over at BuzzFeed.  Jon Lansman, the organisation’s founder, still owns the data and has the ability to shut down the entire group, should he chose to do so, something he is being urged to do by allies. I explain the origins of the crisis here.

STOP ME IF YOU’VE HEARD THIS ONE  BEFORE

Italy’s oldest bank, Monte Paschi, may need a state bailout after its recapitalisation plan was thrown into doubt following Matteo Renzi’s resignation. Italy’s nervous bankers will wait to see if  €1bn of funds from a Qatari investment grouping will be forthcoming now that Renzi has left the scene.

BOOM BOOM

Strong growth in the services sector puts Britain on course to be the highest growing economy in the G7. But Mark Carney has warned that the “lost decade” of wage growth and the unease from the losers from globalisation must be tackled to head off the growing tide of “isolation and detachment”.

THE REPLACEMENTS

David Lidington will stand in for Theresa May, who is abroad, this week at Prime Ministers’ Questions. Emily Thornberry will stand in for Jeremy Corbyn.

QUIT PICKING ON ME!

Boris Johnson has asked Theresa May to get her speechwriters and other ministers to stop making jokes at his expense, Sam Coates reports in the Times. The gags are hurting Britain’s diplomatic standing, the Foreign Secretary argues.

AND NOW FOR SOMETHING COMPLETELY DIFFERENT

It’s beginning to feel a bit like Christmas! And to help you on your way, here’s Anna’s top 10 recommendations for Christmassy soundtracks.

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Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.